actuarial assumtion affect PBO

Pension funds-

Please clarify what is meant when they say only actuarial assumption affect PBO?

How is the PBO calculated?

Future benefit obligation discounted back to today at some discount rate (actuarial assumption).

Future benefit obligation depends on starting salary (not an assumption),growing at a given growth rate (acutarial assumption) for a given number of years (acutarial assumption).

What else is there?

I’m watching the 2012 Schweser video on Employee Compensation: Post-retrirement & Share-based. Jon Bone repeats a few times an incorrect explanation of an actuarial gain or loss on liabilities. He says it’s due to actuaries changing assumptions as to discount rate, rate of salary increase & various demographic assumptions. Only partially true.

It is true that the discount rate routinely changes from year to year, as required by accounting standards. This causes an actuarial gain or loss. The other assumptions may also be changed, although this happens much less frequently than annually, as a rule. The main source of actuarial gains & losses is sometimes called actuarial error; i.e., the actuarial assumptions aren’t realized. E. g., salaries increase more or less than was assumed in a year, more or fewer members retired, died, quit or whatever. In other words, liability experience gains & losses. These affect the PBO. For example, actuaries project salaries (to estimate final average salary) based on the updated salary information.

As the guy from the video lecture knappy is right but we stick to what you need to know from the syllabus rather than the 100% real world. The point of the videos is we help you with the test and what’s in the syllabus. If it’s not in the CFAI underlying texts then we don’t talk about it as you don’t need to know it for the exam.